Cheap Gas and Cheaper Propane: How and Why
Remember $1.50 per gallon gasoline? It’s been about ten years since we had gasoline that cheap in northern Indiana, that is until about two weeks ago. With the price of oil at a 10-year low, the corresponding drop in fuel pricing has been a huge relief for a lot of us. But it’s a relief anyone could have had anytime over the last 10 years by switching to an alternative fuel.
While traditional fuels may go up and down in price drastically over just a few months, propane has been a much more stable commodity. Why does propane not experience the price swings of gasoline and diesel? It’s simple really: the domestic supply chain and a consistent demand. Although occasionally a hard winter can cause a spike in demand and then price, propane supply and use are fairly predictable and consistent. Since this winter has been fairly mild, the wholesale propane market hasn’t changed much, and neither has the price of propane. Our price on autogas has stayed at $.95 gallon for over a month, and we anticipate it staying there all year or dropping further.
The same of course cannot be said for crude oil which is refined into gasoline and diesel. The reason for this is twofold: both the supply and demand change more often. As our economy and the world economy gain strength overall, usage and then price rise accordingly. Nothing shocking there, just simple economics. What is unusual though is the effect some oil producers have on price from the supply side.
Since the United States cannot or does not produce as much oil as it uses, we must buy it from foreign countries, and they don’t always behave like a normal free market. The Oil Producing Exporting Countries, or OPEC for short, is the most powerful example of this. This group of 12 countries has extraordinary power in the market since they collectively produce 30% of the world’s oil supply. By intentionally limiting how much each member country can sell, they give themselves the ability actually limit the global supply below demand to raise the global price of oil.
It is an imperfect system, since the member countries always want to capitalize on the increased price they created by breaking their promise to limit exports and selling more than they agreed to, but at times it has been very effective in raising the global price of oil. Unfortunately for them, oil production outside of the member countries has been growing in recent years, so their restriction of supply has less effect on the market when they want it to. The other factor has been their own internal struggles. Recently some of the OPEC members haven’t gotten along with each other, so their collusion power and oil prices have both decreased accordingly.
What all this means for you is that cheap gasoline may only be temporary. But with autogas, you get fuel with less price risk, that is still a better deal than gasoline at a ten year low. When will you make the switch to decrease your risk in the market and protect your bottom line?